Analysis: Hedge funds cut bearish Bitcoin futures bets nearly 15% amid price decline

Hedge funds cut net bearish Bitcoin futures bets nearly 15% even as Bitcoin fell toward $80,000. Commodity Futures Trading Commission (CFTC) data showed leveraged funds held net shorts equivalent to 30,611 BTC as of Oct. 13. The net short position declined by 5,292 BTC from 35,903 BTC a week earlier. Bitcoin fell nearly 3% during the reporting period, from about $85,600 on Oct. 6 to $83,100 on Oct. 13. Bitcoin briefly slipped below $81,000 as rising Treasury yields, weakening institutional demand and a global technology stock selloff weighed on risk appetite.

CFTC figures showed outright shorts declined by 6,437 BTC to 59,458 BTC. CFTC figures showed outright longs declined by a smaller 1,145 BTC to 28,847 BTC. The faster decline in shorts narrowed the bearish imbalance, although leveraged funds maintained more than twice as much outright short exposure as long exposure. Bitcoin's decline offered bearish traders opportunities to take profits, while repeated price reversals increased the risk of holding leveraged positions.

Bitcoin's weakness accelerated on Oct. 7 as Treasury yields approached 5.3% and expectations of additional Federal Reserve tightening weighed on speculative assets. Elevated oil prices reinforced concerns about persistent inflation. Higher bond yields increased the relative appeal of interest-bearing investments. Bitcoin fell below $81,000 on Oct. 8, extending a retreat from near $87,000 earlier in the month. The decline weakened confidence in Bitcoin's late-September recovery, particularly as demand through US-listed exchange-traded funds deteriorated.

Market volatility intensified on Oct. 13 as a sharp selloff in South Korean semiconductor stocks spread through Asian equities. South Korea's KOSPI plunged about 5.5%. Samsung Electronics and SK Hynix suffered heavy losses amid concerns about the financing and profitability of artificial intelligence investments. The selloff coincided with approximately $813 million in cryptocurrency liquidations over 24 hours, including $686.72 million in bullish positions. Bitcoin briefly fell below $81,000 before rebounding above $83,000. The price swings made large directional positions increasingly risky, giving leveraged funds an economic incentive to reduce exposure despite continuing pressure on Bitcoin.

CFTC data showed leveraged funds increased spreading positions by 2,719 BTC-equivalent per leg to about 8,434 BTC, up nearly 48% during the reporting week. Spreading strategies can involve buying futures contracts with one expiration date while selling contracts expiring in another month. Such strategies allow traders to seek returns from differences in futures pricing while limiting directional exposure. The increase lifted gross long exposure by 1,574 BTC to approximately 37,281 BTC, even though outright bullish positions declined. Gross short exposure fell by 3,718 BTC to 67,891 BTC as increased spreading activity partly offset the reduction in directional shorts. Combined open interest across standard and micro CME Bitcoin futures declined by approximately 3,567 BTC-equivalent, or 3.2%, during the week. The figures show leveraged funds reducing outright market exposure while committing more capital to offsetting futures positions.

Asset managers maintained a contrasting profile, holding approximately 18,440 BTC-equivalent in net long positions. Asset managers' bullish imbalance rose by roughly 547 BTC, mainly because short holdings fell faster than long positions. However, Bitcoin's subsequent performance complicated the outlook for both asset managers and leveraged funds. Hotter-than-expected US consumer inflation on Oct. 14 revived expectations of another Federal Reserve rate increase, sending Bitcoin below $83,000. A sharp increase in wholesale inflation the following day pushed Bitcoin to approximately $79,730 and triggered $939 million in cryptocurrency liquidations. Bitcoin recovered to about $82,800 on Oct. 19, although the market remained vulnerable to further selling. Glassnode identified a significant concentration of buying interest near $80,000, with the next major support around $78,000 if $80,000 fails to hold.

The subsequent price movements occurred after the latest CFTC positioning snapshot. Whether leveraged funds continued reducing bearish exposure or rebuilt short positions during the renewed selloff remains an open question. The next CFTC report is scheduled for Oct. 23 and covers positions as of Oct. 20. The report will offer the first indication of hedge funds' response to the latest inflation-driven decline and whether bearish bets continued shrinking as Bitcoin struggled to establish support above $80,000.